Authorized Users: Any Credit Risk? Any Benefit?
January 6, 2003, Revised April 23, 2003, January 8, 2007, January 27,
2009
An authorized user of a credit card has the right to use the card but no obligation to pay it.
"In applying for a mortgage recently, I found that the interest rate quoted was for someone with poor credit, which surprised me. I have never missed a payment on a mortgage, credit card or other debt in my life. My credit report, however, shows delinquencies on credit cards that belong to my boyfriend, who has delinquencies and is in credit counseling. I am an authorized user of these cards but I have never used any of them and I am not legally responsible for them. Nonetheless, there they are on my credit report, lowering my credit score. Why has this happened, and what can I do?"
I was unable to answer this question, and turned to Catherine Coy, a mortgage broker in Los Angeles who runs a Credit Mastery Workshop for people with credit problems. The following is the exchange between Catherine and me.
JG: Catherine, what is an "authorized user"?
CC: Someone authorized by the original credit card holder to use the holder’s card. The card-holder is responsible for the charges of the authorized user, but the authorized user is not responsible for paying any charges, including his own. An authorized user is different from a co-applicant, who is responsible for paying all charges, including those made by the principal card-holder.
JG: It sounds like something a trusting parent might do with a child, although I never remember doing it with my kids. I may have guaranteed their cards early on, but they had the primary responsibility of paying the bills. I wanted them to learn how to manage their finances. Why would any card-holder give someone a free ride?
CC: Some credit card holders want their child or spouse, who don’t have an income of their own, to be able to use a credit card without having to pay for their purchases. Credit card companies often make it easy to do this by including a provision for an extra card on the application form.
JG: If a bank or other credit grantor agrees that the authorized user is not responsible for repayment of the debt, how did it get on this person’s credit history as a delinquency?
CC: It got on there because the credit grantor reported it to the credit reporting agency as a delinquency of the authorized user. Why? Unable to collect from the responsible party, the original card-holder, the credit grantor hopes that maybe the authorized user will pay to keep their credit record clean.
JG: That smacks of blackmail!
CC: It is, sort of, but it is understandable. Credit grantors have been burned many times when authorized users have run up credit card bills and the original card-holder has refused to pay. Despite the fact that they are clearly responsible, card-holders make life difficult for grantors when they say "Hey, I’m not paying, you don't see my signature on all those credit slips, do you?"
JG: That doesn’t justify it.
CC: I agree.
How Does an Authorized User Get Rid of Delinquencies on Her Record?
JG: So what can she do?
CC: Assuming she is confident she signed nothing herself, she should write to each credit grantor and get a copy of the contract that her boyfriend signed. At the same time, she should write to both the credit grantor and the credit reporting agency, as follows:
"I'm an authorized user only and am not financially responsible for this debt. By reporting me delinquent, you are impugning my credit reputation in full violation of the Fair Credit Reporting Act (FCRA). I am aware of my rights under the Act. I intend to enforce them if you don't immediately remove all derogatory information from my credit profile that you placed there as a result of non-payment by the financially responsible party."
In addition, please provide me with a copy of the agreement you claim I signed and upon which you are reporting delinquencies in my name to the credit bureaus.
JG: She should write the credit grantor twice?
CC: Yes. While this may seem like a duplication of effort, she should be armed with all available information to back her up if the bureaus prove to be obstinate, which they often are.
JG: And if this doesn’t work?
CC: She will have to play hardball and hire an attorney to write an even more forceful letter. Both consumer reporting agencies and credit grantors can be sued under the FCRA, and it might help if more people did it. The attorney should specialize in FCRA matters. The National Association of Consumer Advocates provides a list, see http://www.naca.net/db.php3 .
JG: As a postscript, the woman who wrote the letter above wrote me later to relate how she had fared in following Catherine’s advice. She said that two of the four credit grantors that had reported her delinquent responded immediately and were cooperative. The other two gave her the run-around. They finally came around, but only after she had spent an inordinate amount of time on the telephone and had made a thorough nuisance of herself.
"I am planning to buy real estate soon. I am also attempting to boost my credit score by becoming an authorized user on a credit card my mother has had for 15 years (she's never missed a payment nor been late). She called the credit card company to add me as an authorized user, and explained the reason - to help me boost my credit score. They told my mom I can only boost my credit score if they add me as a co-owner on the account. They offered to send her a form to have me include my SS#, other information and my signature. I do not want to be a co-owner. Is this a ploy, or can credit card companies make their own rules regarding how a person can boost their credit score with their credit card?"
I had trouble with this one also and sought help from Liz Pulliam Weston, who wrote Your Credit Score: How to Fix, Improve and Protect the 3-Digit Number that Shapes Your Financial Future (2004, Prentice Hall). Liz says that credit grantors do indeed make their own rules as to whether or not they report authorized users to the credit reporting agencies. Some do and some don't.
The young lady who wrote me, looking for a free ride on her mother's good credit but unwilling to assume any credit responsibility, was frustrated because her mother's grantor was one that didn't report authorized users. Had she been more fortunate in her mother's choice of grantor, however, she might well have found the free ride she sought.
In 2008, the rules for calculating FICO scores were changed to eliminate all authorized user information. If the principal card holder does not pay, the credit grantor can still report the authorized user as being delinquent, but the delinquency will not be used in calculated the authorized user’s credit score. Similarly, the authorized user’s score will not benefit from the good payment habits of the principal card holder.
What Is an Authorized User?
An authorized user of a credit card has the right to use the card but no obligation to pay it.
"In applying for a mortgage recently, I found that the interest rate quoted was for someone with poor credit, which surprised me. I have never missed a payment on a mortgage, credit card or other debt in my life. My credit report, however, shows delinquencies on credit cards that belong to my boyfriend, who has delinquencies and is in credit counseling. I am an authorized user of these cards but I have never used any of them and I am not legally responsible for them. Nonetheless, there they are on my credit report, lowering my credit score. Why has this happened, and what can I do?"
I was unable to answer this question, and turned to Catherine Coy, a mortgage broker in Los Angeles who runs a Credit Mastery Workshop for people with credit problems. The following is the exchange between Catherine and me.
JG: Catherine, what is an "authorized user"?
CC: Someone authorized by the original credit card holder to use the holder’s card. The card-holder is responsible for the charges of the authorized user, but the authorized user is not responsible for paying any charges, including his own. An authorized user is different from a co-applicant, who is responsible for paying all charges, including those made by the principal card-holder.
JG: It sounds like something a trusting parent might do with a child, although I never remember doing it with my kids. I may have guaranteed their cards early on, but they had the primary responsibility of paying the bills. I wanted them to learn how to manage their finances. Why would any card-holder give someone a free ride?
CC: Some credit card holders want their child or spouse, who don’t have an income of their own, to be able to use a credit card without having to pay for their purchases. Credit card companies often make it easy to do this by including a provision for an extra card on the application form.
How Do Delinquencies Get on an Authorized User’s Credit Report?
JG: If a bank or other credit grantor agrees that the authorized user is not responsible for repayment of the debt, how did it get on this person’s credit history as a delinquency?
CC: It got on there because the credit grantor reported it to the credit reporting agency as a delinquency of the authorized user. Why? Unable to collect from the responsible party, the original card-holder, the credit grantor hopes that maybe the authorized user will pay to keep their credit record clean.
JG: That smacks of blackmail!
CC: It is, sort of, but it is understandable. Credit grantors have been burned many times when authorized users have run up credit card bills and the original card-holder has refused to pay. Despite the fact that they are clearly responsible, card-holders make life difficult for grantors when they say "Hey, I’m not paying, you don't see my signature on all those credit slips, do you?"
JG: That doesn’t justify it.
CC: I agree.
How Does an Authorized User Get Rid of Delinquencies on Her Record?
JG: So what can she do?
CC: Assuming she is confident she signed nothing herself, she should write to each credit grantor and get a copy of the contract that her boyfriend signed. At the same time, she should write to both the credit grantor and the credit reporting agency, as follows:
"I'm an authorized user only and am not financially responsible for this debt. By reporting me delinquent, you are impugning my credit reputation in full violation of the Fair Credit Reporting Act (FCRA). I am aware of my rights under the Act. I intend to enforce them if you don't immediately remove all derogatory information from my credit profile that you placed there as a result of non-payment by the financially responsible party."
In addition, please provide me with a copy of the agreement you claim I signed and upon which you are reporting delinquencies in my name to the credit bureaus.
JG: She should write the credit grantor twice?
CC: Yes. While this may seem like a duplication of effort, she should be armed with all available information to back her up if the bureaus prove to be obstinate, which they often are.
JG: And if this doesn’t work?
CC: She will have to play hardball and hire an attorney to write an even more forceful letter. Both consumer reporting agencies and credit grantors can be sued under the FCRA, and it might help if more people did it. The attorney should specialize in FCRA matters. The National Association of Consumer Advocates provides a list, see http://www.naca.net/db.php3 .
JG: As a postscript, the woman who wrote the letter above wrote me later to relate how she had fared in following Catherine’s advice. She said that two of the four credit grantors that had reported her delinquent responded immediately and were cooperative. The other two gave her the run-around. They finally came around, but only after she had spent an inordinate amount of time on the telephone and had made a thorough nuisance of herself.
Authorizing Users Raising Their Credit Score
"I am planning to buy real estate soon. I am also attempting to boost my credit score by becoming an authorized user on a credit card my mother has had for 15 years (she's never missed a payment nor been late). She called the credit card company to add me as an authorized user, and explained the reason - to help me boost my credit score. They told my mom I can only boost my credit score if they add me as a co-owner on the account. They offered to send her a form to have me include my SS#, other information and my signature. I do not want to be a co-owner. Is this a ploy, or can credit card companies make their own rules regarding how a person can boost their credit score with their credit card?"
I had trouble with this one also and sought help from Liz Pulliam Weston, who wrote Your Credit Score: How to Fix, Improve and Protect the 3-Digit Number that Shapes Your Financial Future (2004, Prentice Hall). Liz says that credit grantors do indeed make their own rules as to whether or not they report authorized users to the credit reporting agencies. Some do and some don't.
The young lady who wrote me, looking for a free ride on her mother's good credit but unwilling to assume any credit responsibility, was frustrated because her mother's grantor was one that didn't report authorized users. Had she been more fortunate in her mother's choice of grantor, however, she might well have found the free ride she sought.
Recent Changes in FICO Scoring Rules
In 2008, the rules for calculating FICO scores were changed to eliminate all authorized user information. If the principal card holder does not pay, the credit grantor can still report the authorized user as being delinquent, but the delinquency will not be used in calculated the authorized user’s credit score. Similarly, the authorized user’s score will not benefit from the good payment habits of the principal card holder.